Hi everyone,
I’m sure the property heros out there have heard this asked a million times before and I can almost here the groans from the professionals who have seen and answered this question overand over again, but can I please get some help with some figures to see if some properties I’m looking at would be cash flow positive.I have 3 properties that I want to use for examples. I have only seen them on the net and so have no further info about them then I have put here.
1) Price $100,000 rent is $323/w
2) Price $36,000 rent is $121/w
3) Price 120,000 rent is $461/W
They are all Canadian properties and rent/month, I converted in to weeks as I prefer to look at it that way.
The simple and probably incorrect way of gaining some idea if they will be cash flow positive is to assume a 8% P.I. loan for entire amount, then use 80% of the rent. A neg geared property I have I received aprox 80% of the rent, the rest went to tax and agents fees etc.
I would love any thoughts ideas and or criticims. Except about my spelling which I know is hopeless.
JRW,
11 second guide says all 3 are a go. Look good to me.
Cheers,
Michael.The numbers alone look great.
Certainly +cf (assuming no extraordinary annual payments for whatever reason).The one thing that may detract is the area they are in. For example; is it a mining town where the mining company pays large rents on behalf of it’s employees, but if the mine closes down….
That sort of thing.
If it’s a “normal” sort of town/city, I’d be jumping on them if I knew what I was doing with respect to the intracacies of Canadian investments.
Regards,
ClintWOW [lmao]
So long as there is a rental demand for these type of properties and it’s for 52 weeks a year I can’t see were the problem is.
Are those prices quoted in cCanadian $ or Aussie Dollars?
Cheers, Nobleone [specool]
Thanks for your help guys (I use ‘guys’for both sexes, don’t want anyone getting offended). What method did you guys figure out the numbers for yourself? I have heard about the 11 second rule but don’t know what it is.
Also, how would you go about finding out if the rental market is good, besides asking the real estate agents? Will the agents show you a copy of something proving the rental of the particular property in question? Can a buyers agent do that sort of research for you?
I’ll stop there because it annoys me when someone asks 20 questions like that.
The prices were Canadian dollars.
Thanks again for your help.
11 Second rule.
Weekly rent/2 (ie halve it) X 1000.
If the cost of sale is equal to or below the figure offered for sale, it is a good starting point. Just check for oddities and unusual expenses.
You cna check the town or area on the internet, some places list economic stats, unemployment etc.
Be careful of using one agent, they could offer a bias view, shop around.Good luck[biggrin]
where in canada is it i have relatives there who may be able to point you in the right direction for your research
hey nah
Hi again,
Thank you all for your help/ I have tried the 11 secound rule as told to me, that is ‘Weekly rent/2 (ie halve it) X 1000.
If the cost of sale is equal to or below the figure offered for sale it is a good starting point. I have been told the following figures are good according to the 11 secound rule:1) Price $100,000 rent is $323/w
2) Price $36,000 rent is $121/w
3) Price 120,000 rent is $461/W
Yet if i use the 11 secound rule for 1) 323 %2 x 1000 = $161500. But the purchase price is $100,000. How it was explained to me the figure ($161000) should eb equal to or below the price to be good, whoich it is not. Did I miss undestand something here, is 1) a good deal or not?
Confused but still handsome,
JRWto make it clear these are exceptionally good via the 11 second rule
hey nah
If they are good via the 11 secound rule, how am I doing the maths worng? Is the asking price suppost to be ABOVE rent /2 x1000? Please show me the formula again. Very confused but thankful
Had another look at what was explained to me and I finally get it. The price should be equal to or below the number given by using the 11 secound rule. ie $100,000 (price) is less then $161,500. I get it.
A bit slow on the uptake sometimes.
Thanks again to everyone.
Rather than get caught up in the mathematics of it all, another option instead of using the “11 second rule” is to do the following;
1) Work out all the costs of owning the property and convert to a weekly basis.
2) Work out all the income from the property and convert to a weekly basis.
If (2) is more than (1) then it is positive cashflow (+cf). If it is the other way around then it is negative cashflow.
Item (2) is usually pretty easy, it is simply the rental that you have already provided in your posts. All you have to do is make sure you are comfortable that they are accurate figures (an actual lease in place for that amount, or follow the suggestions of some of the other responses to this thread).
(1) is a little more detailed. You need to factor in the cost of loan repayments, property insurance, leasing agent fees, council rates and perhaps something for repairs and maintenance depending on the age of the property. Also, as I prompted in my first post here (and Drewbie also mentioned), are there any other special or unusual costs; strata fees, regional taxes etc?
Once you have all of the above, convert them into a weekly rate (eg, $520 worth of annual insurance equates to $10 per week) and then compare the figure to your rental income.
What the “11 second rule” does is give you a very quick approximation of the costs. It takes the purchase price and says “Typically, if you divide this number by 1000 and then multiply by 2, this gives you an idea of what your costs will be each week”.
Obviously, if this estimated number is BELOW the rent you receive, you have +cf.It’s simply a good test to see if your property is in the ballpark. If it is, then you go and work out the “real” numbers as I have illustrated above.
Regards,
ClintI lived in Canada for 16 years so if you want to email or post the locations I’d be happy to give you my opinion on them.
If they’re in a depressed, high unemployment area in go nowhere Provinces like Newfoundland or Quebec (there are always exceptions) where there are a lot of unemployed people and/or vacant houses, then I’d run in the opposite direction. But, if they’re in an up-beat town in a Province like Ontario, British Columbia or Alberta, I’d say grab ’em! As long as there’s rental demand and employment, the numbers look great.
Vicky
Thanks again with all the help from everyone. I realise that formulars such as the 11 secound rule are guides rather then the one thing I need to give the green light on a property. With the expenses such as land tax, rates, etc, how do I find those out. It that something the real estate agent can give me a guide on or do I have to go somewhere else for that?
The properties I was looking at are in BC. I know a few of the suburbs a small bit, I think one might be in a dodgy area, but I think the rental demand might still be there, and it isn’t a mining town or anything like that, but there may be students contributng to the rental demand of the area, which I know will fluctuate throughout the year.
There is a somersoft thread on investing in the US in the past couple of weeks by quiggles. Very detailed. Sets out some issues that we might not have thought of re maintenance of buildings particularly roofs
Thanks crj, I’ll go look for that post now.
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